Price talk out on Nortel, Windstream mega-deals; Chesapeake prices; GM steady despite news barrage

By Paul Deckelman and Paul A. Harris

New York, June 27 - The junk bond primary market spent Tuesday getting its ducks in a row ahead of what promises to be a very busy last few days of June, with price talk emerging on Nortel Networks Ltd.'s upcoming $2 billion, three-tranche issue and revised price talk and restructured covenants seen on Windstream Corp.'s $2.5 billion two-part behemoth of a deal.

Meanwhile Chesapeake Energy Corp. priced a $500 million of seven-year notes,

At the same time, syndicate sources heard that Armor Holdings Inc. had postponed its planned $400 million offering of 10-year senior subordinated notes, citing unfavorable market conditions.

The secondary market meanwhile continued to, fittingly, play a secondary-type role. Despite several important news developments, General Motors Corp.'s notes were little changed on the day as the whole automotive sector pretty much spend the day idling. The only real movement was seen in the longer-maturity debt of Nortel, as well as in the distressed bonds of Owens Corning, which continue to gain in apparent response to the bankrupt Toledo, Ohio-based insulation maker having gained court approval for an agreement that could pave the way toward ending its restructuring sooner, rather than later.

A high yield syndicate official marked the beaten-up junk bond market down half a point or more after the close of the Tuesday session.

Chesapeake prices $500 million

In the primary market one company issued bonds in a single tranche during the Tuesday session.

Chesapeake Energy Corp. priced a $500 million issue of 7 5/8% seven-year notes (Ba2/BB) at 98.266 to yield 7.95%, 7.5 basis points beyond the wide end of the 7¾% area price talk.

Banc of America Securities LLC, Deutsche Bank Securities, Goldman Sachs, Lehman Brothers, Wachovia Securities were joint bookrunners for the Oklahoma City-based natural gas producer's deal.

Proceeds, along with a $500 million offering of convertible preferred shares and 20 million common shares to raise approximately $600 million will be used to fund the $932 million Barnett Shale acquisitions, to repay the company's revolver and for general corporate purposes.

Mega-deal developments

Elsewhere news circulated on two of the week's anticipated whoppers.

Windstream widened talk on its $2.503 billion two-tranche offering of senior notes (Ba3/BB-).

The Little Rock, Ark.-based telecommunications company created by Valor Communications Group Inc.'s acquisition of Alltel Corp. Inc.'s landline telecom business, pushed talk on its $800 million seven-year bullet tranche out to 8% to 8 1/8% from earlier talk of 7¾% to 8%.

Meanwhile the company revised talk on its $1.703 billion 10-year notes to 8 5/8% at a discount to yield 9%. The notes, which come with five-years of call protection, had earlier been talked in a range of 8 1/8% to 8½%, that is three-eighths of a point to one-half of a point behind the seven-year notes relative to the original 7¾% to 8% price talk on that tranche.

The books close at 10 a.m. ET Wednesday with pricing expected after that.

Merrill Lynch & Co. and JP Morgan are joint bookrunners for the Rule 144A offering.

Tuesday's restructuring of the deal also involved covenant changes.

One source close to the deal asserted that had Windstream come to the primary market a couple of months ago it would have blown out.

"Right now people just are not putting in for allocations as big as had been the case in the early to mid-spring," the source said, adding that trailing the revised price talk the order book for the seven-year notes is two-times oversubscribed and the book for the 10-year notes is 1.5-times-plus oversubscribed.

Nortel talks $2 billion

Elsewhere talk was heard on Nortel Networks's $2 billion three-tranche offering (B3/B-).

The company talked its tranche of seven-year non-callable fixed-rate notes at a yield of 10% to 10¼%.

Nortel Networks' 10-year fixed-rate notes, which come with five-years of call protection, were talked at 10½% to 10¾%.

The tranche of five-year non-callable floating-rate notes were talked at Libor plus 425 basis points.

Tranche sizes remain to be determined. Pricing is expected on Thursday via JP Morgan and Citigroup.

Finally WCA Waste Corp. talked its $150 million offering of eight-year senior notes (B2/B-) at 9¼% to 9½%.

Credit Suisse has the books for the offering which is expected to price on Wednesday or Thursday.

Armor pulls $400 million

In other primary news, Armor Holdings postponed its proposed $400 million issue of 10-year senior subordinated notes (B1/B+) citing market conditions.

Merrill Lynch & Co. and Wachovia Securities were joint bookrunners for the proposed deal from the Jacksonville, Fla., maker of security products and vehicle armor systems.

The postponement comes just two days after Fleetpride Corp. pulled its $150 million offering of eight-year senior notes (Caa1/CCC+).

A sell-side source said Tuesday that the primary market remains open, but only to very high quality issuers, and added that the liquidity of the market may be drying up a bit.

"Everyone is waiting to see what the Fed does," the source added, referring to the two-day meeting of the Federal Open Market Committee, the policy-making arm of the U.S. Federal Reserve, which is set to conclude Thursday, and is also expected to result in another increase in short term U.S. interest rates.

Although all sources polled thus far by the Prospect News High Yield Daily primary market desk anticipate a 25 basis points boost to the rate, taking it to 5.25%, a few concede that there seems to be some concern in the capital markets that the Fed could come with a "supersize" 50 basis points move.

The sell-sider who spoke Tuesday said that should the Fed elect to boost rates by 25 basis points this week, and another 25 basis points at its next meeting, say, giving some indication along that way that the 50 basis points total of hikes would conclude the present round of interest rate increases, the junk market could rally.

"People just want to get some clarity as to where the end is," the source said.

The source added that the market also should gain some clarity once the pre-Fourth of July forward calendar has been cleared out.

Nortel lower

In the secondary market, a trader said that Nortel's upcoming big deal helped to push some of the Brampton, Ont.-based telecommunications equipment provider's longer-dated issues lower, apparently offsetting the positive impact of a company announcement outlining progress in reducing its worldwide headcount and otherwise streamlining the company.

He saw Nortel's 6 7/8% notes due 2023 falling to bid levels around 79, down from the 81-81.5 area on Monday, so "the long Nortel paper definitely got hit, off a couple of points." He said that "there's not much of a credit concern in the short end - there's that convertible deal, and the long Nortel paper."

Another trader said that Nortel has been "very little quoted for quite a while," quoting the 6 7/8s as having begun the day offered at 85, but seeing nothing further in them later in the session, and pegging the Nortel 7 7/8% notes due 2029 offered at 90, but again with not much seen after that.

Nortel announced plans to cut a net total of 1,100 jobs, or around 3.2% of its 35,000-person global workforce, by eliminating about 1,900 positions around the world and creating 800 new jobs ones in "centers of excellence" in countries with relatively lower costs, Mexico and Turkey.

Nortel, which lost $2.58 billion in 2005, will also squeeze its pension plan to trim costs and improve margins, and otherwise move toward a more simplified organizational structure. It said that those changes will save it about $100 million in 2007 and $175 million by 2008, as the company tries to achieve growth in operating margins of more than $1.5 billion in 2008.

Nortel plans to incur restructuring costs of about $100 million over two years, $35 million of it in the current second quarter.

GM little changed

Elsewhere, there seemed to be not much movement, despite a lot of news, in GM's bonds, and those of its financing subsidiary, General Motors Acceptance Corp. A trader saw GM's benchmark issue, the 8 3/8% notes due 2033,"roughly unchanged" at 74.625 bid, 75.625 offered.

He noted that GM executives were predicting Tuesday that the carmaker would have a "brutal' June, sales-wise, with sales expected to show a 30% drop from year-ago levels, which had been artificially boosted by the employee discount incentives which GM was offering to all consumers at this time a year ago. This time around, they said, GM will not be giving those kinds of prices to non-employees, although it will briefly offer 0% financing for up to six years on most Chevrolet, Buick, Pontiac and GMC models in an effort to cut inventories. That sale begins Thursday and ends July 5.

"So GM's June sales are going to be bad," he said. "Then you have the opposing wind, blowing the other way, which is the positive news about the buyouts," with GM having announced late Monday that some 35,000 of its 113,000 unionized hourly employees had accepted buyout offers, putting GM well ahead of its stated goal of at least 30,000 job cuts by 2008, "but nobody seems to really care much about that right now."

GM's New York Stock Exchange-traded shares meanwhile fell $1.85 (6.67%) to $25.90 on volume of 27.3 million, more than double the norm.

"The stock took it on the chin, based on the [projected June] sales numbers, but the stock has been more volatile than the bonds. It had gotten a little ahead of itself" on prior indications that the buyout program announced a month ago was going well, "and it set itself up for a fall a little more."

The bonds, he concluded "were not exactly setting the world on fire."

Another trader quoted the 8 3/8s "actually up" half a point at 75 bid, 75.5 offered, agreeing that "the bonds did much better than GM's stock, at least, did." He saw GMAC's 8% notes due 2031 up ¼ point at 93 bid, 93.5 offered.

Standard & Poor's said Tuesday that GM's debt ratings, including its B corporate credit rating, will remain on CreditWatch for a possible downgrade, despite the company's success in trimming its labor costs through the buyout offers.

"Still, market share losses, and the need to execute on the other cost-based aspects of the plan such as plant closings, remain concerns," S&P analyst Robert Schulz wrote in his commentary announcing the decision, also noting the fact that GM's "most pressing near-term issue is resolving several issues concerning GM's exposure to Delphi [Corp.], its former unit and an important supplier."

Ford rises

Elsewhere among the automotive names, the second trader saw GM arch-rival Ford Motor Co.'s 7.45% notes due 2031 half a point better at 70 bid, 70.5 offered, and the latter's Ford Motor Credit Co. financing arm's 7% notes due 2013 also up half a point at 85 bid, 85.5 offered.

Among other automotive-related names, he saw Lear Corp.'s 8.11% notes due 2009 unchanged at 96.5 bid, 97.25 offered, while the Southfield, Mich.-based interior, seating and electronic components maker's 5¾% notes due 2014 were ¼ point better at 80.5 bid, 81 offered.

Among the former GM subsidiaries, he said, Remy International Inc.'s 8 5.8% notes due 2008 were steady at 92.5 bid, 94.5 offered, while its 11% notes due 2009 were likewise unchanged at 56 bid, 58 offered.

Ex-GM unit Delphi Corp.'s 6.55% notes due 2006 were unchanged at 81.5 bid, 82.5 offered, while the bankrupt Troy, Mich.-based electronics manufacturer's 7 1/8% notes due 2029 were ¼ point better at 76 bid, 77 offered. Delphi's bonds, like those of its erstwhile corporate parent, showed little real response, then, to Monday's positive buyout news. The company - trying desperately to cut its heavy labor costs as it restructures via Chapter 11, offered buyouts to all of its approximately 23,000 hourly employees represented by the United Auto Workers union and said Monday that some 12,600 had accepted. Delphi continues to negotiate on offering similar buyouts - which like the UAW worker offers, would be largely funded by GM - to its 10,000 hourly employees represented by unions other than the UAW.

Owens Corning up again

The only other real movement in the junk market Tuesday came in the continuing rise of Owens Corning's bonds, which have been firming since last week on the news that the bankruptcy court overseeing its restructuring had approved an agreement with the company's key creditor groups - including its asbestos claimants - which gets them behind its proposed reorganization plan. That in turn has raised hopes that the company - in bankruptcy since 2000 - may actually emerge from Chapter 11 this year, perhaps as soon as Oct. 31.

Owens Corning's 7½% notes due 2018 were seen by a trader as having pushed as high as 89 bid from an opening level at 84 bid, 86 offered, before coming off that peak to end up two points on the day at 86 bid, 88 offered.

Another trader saw the bonds up 2½ points on the day at 86.75 bid, declaring that at that shop, "Owens Corning was all that moved - everything else was very quiet."

Hanover up intraday

Apart from the distressed names, a trader saw Hanover Compressor Holding Co.'s 8 5/8% notes due 2010 up half a point, intraday, to 101.75, after having opened at 101.25, but said that the peak level was about where those bonds had gone home on Monday.

The Houston-based oilfield services company's NYSE-traded shares were up $1.07 (6.44%) at $17.69, on volume of 2.4 million, about twice the usual turnover.

That whole sector got a boost Tuesday, as Hanover rival Universal Compression Holdings Inc. unveiled plans to spin off nearly half of itself into a limited partnership.

That sent the Houston-based company's NYSE-traded shares up $5.28 (9.72%), to $59.61, on volume of 1.2 million shares, about four times the usual handle. However, its 7¼% notes due 2010 were seen "pretty much unchanged," a trader said, hanging in within a 99-par bid context on Tuesday.

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